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The `Shadow Bank Of Japan' Strikes Again

April 07, 1991

International Business

THE `SHADOW BANK OF JAPAN' STRIKES AGAIN

For three days in mid-March, Shigeru Kita whipsawed the Tokyo currency market with $3 billion deals, buying and selling dollars for yen. In the process, the 65-year-old president of Hanwa Co., a steel-trading house, sparked outrage--and pocketed a swift $23 million profit.

Kita is one of the biggest remaining players of zaitech, the financial games practiced by cash-rich companies during the high-speed `80s in Japan. Most players have long since been scared off by the depressed stock market, the drop in real estate prices, and Japan's sputtering economy. Not Kita--at least, not so far. "For me, there's no beginning or end to zaitech," he says. Kita's monthly trading, which has gone as high as $8 billion, now averages $5 billion.

OFF GUARD. Kita first got a taste of currency trading when his brokers botched Hanwa's hedging strategies in 1983. Kita dove in, demanding that his dealers call him every 15 minutes until 11 p.m., after the New York market opens. Their preprogrammed phone numbers included those of his golf club, favorite restaurant, and singing teacher. By last year, only 29% of Hanwa's pretax profits of $243 million came from its $4.9 billion steel business. The rest came from zaitech. His ability to move currency rates has earned him the nickname of "shadow Bank of Japan."

In his Mar. 11-13 foray, Kita called in eight employees from the accounting department to help his two full-time currency dealers. Using banks Hanwa regularly trades through, they bucked unspoken market etiquette by simultaneously placing huge orders, up to $300 million each. On Monday, they bought the dollar, and on Tuesday, they sold, helping force it from above 138 yen to below 136. On Wednesday morning, they bought greenbacks at around 135, pushing the dollar up one yen within minutes. As the one setting off the market gyrations, Kita was able to cash in. But caught off guard were Japanese banks, which lost about $30 million as a result of his moves.

BURNED. The banks are now giving Hanwa the cold shoulder, quoting it unfavorable rates and spreading rumors that Kita got a tongue-lashing from the Finance Ministry. In fact, as a trading company, Hanwa is outside the ministry's jurisdiction. Kita has no fear that the banks will cut Hanwa off. "For 10 years, they have made huge profits off me," he says.

Hanwa borrows big to feed its high-risk habit: Debt runs as much as 12 times its equity. Hanwa has $5 billion in commercial paper outstanding and bank loans worth $11 billion. But it also owns land worth $2.9 billion.

Expanding his horizons, Kita is turning to the U. S. Once burned by a misreading of the market for U. S. Treasury bonds, he shies away from fancy instruments such as futures and options. But he has some $1.5 billion in time deposits, mortgage-backed securities, and junk bonds.

For now, Kita is lying low in Japan. No more fireworks, he says--at least until the new fiscal year begins in April. After that, "I may do it again," he chuckles. To anyone who trades currency, those are fighting words.Karen Lowry Miller in Tokyo